An important objective in regenerative medicine is to make hematopoietic stem cells (HSCs) from embryonic or induced pluripotent stem cells in vitro. No one has yet achieved this goal. A critical factor hindering progress is that we only partially understand how HSCs form and mature in the conceptus. The purpose of the proposed experiments is to understand HSC formation in the embryo in order, and apply what we learn to mouse and human embryonic stem cell cultures. Hematopoietic progenitor and stem cells differentiate from a small population of endothelial cells in the conceptus called hemogenic endothelium. We recently discovered that most hemogenic endothelium produces progenitors, and only a subset of hemogenic endothelium produces HSCs. The HSC-producing hemogenic endothelium can be identified by expression of a Ly6a-driven transgene. In this application we propose experiments to evaluate the utility of the Ly6a-driven transgene in optimizing HSC production from embryonic stem cells. Ly6a-expressing cells have upregulated many markers of inflammation, thus we will examine the role of inflammation in HSC formation in the embryo. Finally, we will examine the utility of other cell surface markers we have identified on Ly6a-expressing cells. Bone marrow transplantation is a life-saving procedure for many patients with malignant and nonmalignant hematologic disease. Unfortunately not every patient has a suitable donor. The ability to produce HSCs from patient-derived iPS cells would solve this problem. We believe that understanding how HSCs form in the embryo is necessary if we are to successfully produce them in vitro.